Bull call spread.

In plain English

A bull call spread buys one call at a lower strike and sells another call at a higher strike with the same expiration date. The premium received for the short call pays for part of the long call, so the position costs less than the long call alone. That discount comes with a ceiling: gains stop once the stock passes the higher strike, because the short call starts losing whatever the long call gains. Maximum loss is the net premium paid. Maximum gain is the difference between the two strikes minus that premium.

01Why it matters

The trade defines the worst case and the best case in advance, so the money at stake is known on the day the position is opened rather than discovered later.

02The math, step by step

Say a stock trades at 50. A trader buys the 50 call for 4 and sells the 55 call for 2, a net cost of 2 per share, or 200 for one contract of 100 shares. Above 55 the spread is worth the full 5 point width, so the profit is 5 minus 2, or 3 per share (300). Below 50 both calls expire worthless and the loss is the 200 paid.

Illustrative example. The amounts here are hypothetical, chosen to show how the math works, not real quoted rates or figures.

03What this is NOT

04Receipts

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